The abstract system and s 100

14 June 2012

The South African land registration system is said to be a unique system which is a combination of both the positive (registration of title) and the negative (registration of deeds) systems, but has more characteristics of a positive system than the negative system, as is evident from section 3(1)(b) of the Deeds Registries Act, 47 of 1937 (the "Act"). This section places a duty on the Registrar of Deeds to examine all deeds and documents thoroughly and to reject them if they do not comply with applicable legislation (inclusive of case law and the common law). Furthermore, section 99 of the Act holds the Government responsible for any damages that may be sustained by any person as a result of any act or omission by the Registrar of Deeds.

Section 100 of the Deeds Registries Act, on the other hand, provides that:

"Formal defect - no act in connection with any registration in a deeds registry shall be invalidated by any formal defect, whether such defect occurs in any deed passed or registered, or in any document upon the authority of which any such deed has been passed or registered or which is required to be produced in connection with the passing or registration of such deed, unless a substantial injustice has by such act been done which in the opinion of the court cannot be remedied by any order of the court."

The question to be asked is whether a 'formal defect' includes non compliance with the common law requirements for transfer of land ownership, more particular two requirements, namely, that the parties must have the intention to pass and receive ownership and that there should be a legal ground (iusta causa) for the transfer of ownership. The requirement that parties must have the intention to pass and receive ownership was set out in the case of Commissioner of Customs and Excise v Randles, Brothers and Hudson Ltd 1941 AD 398 in the following words:

"Ownership of movable property does not in our law pass by the making of contract. It passes when delivery of possession is given accompanied by an intention on the part of the transferor to transfer ownership and on the part of the transferee to receive it."

Although this case dealt with movable property the courts have applied it when dealing with immovable property as well. The requirement that there should be a legal ground for the transfer of ownership has different practical consequences depending on whether a causal or abstract system of transfer applies in our law. In the causal system ownership is not transferred where a valid causa (valid underlying contract) is absent. By a valid underlying contract is meant that there must be a real agreement to transfer and a valid cause, implying that should the underlying agreement be invalid because any formal requirement has not been complied with, no transfer can take place. In the abstract system, on the other hand, all that is required is a valid real agreement (the serious intention to transfer and receive), regardless of whether such intention is supported by an underlying agreement or not. Our case law has shifted from applying the causal system of transfer to applying the abstract system of transfer. For example, in Randles case (supra) (in fact dealing with transfer of movables) Watermeyer JA remarked at page 398:

"It was contended. however, on behalf of the applicant that delivery accompanied by the necessary intention on the part of the parties to the delivery is not enough to pass ownership; that some recognised form of contract is required in addition ... I do not agree with this contention."

In the case of Brits v Eaton 1984 (4) SA 728 (W) Stafford J held that there can be no difference in principle when deciding whether ownership of immovable property passes and in so doing applied the abstract system of transfer when dealing with immovable property. In the case of Legator McKenna v Shea & Others [2008] ZASCA 144; 2010 (1) SA 35 (SCA) at paragraph 22 Brand JA said:

"In accordance with the abstract theory the requirements for the passing of ownership are twofold, namely delivery - which in the case of immovable property is effected by registration of transfer in the deeds office - coupled with a so called real agreement or "saaklike ooreenkoms". The essential elements of the real agreement are an intention on the part of the transferor to transfer ownership and the intention of the transferee to become the owner of the property (see e.g. Air Kel (Edms) Bpk h/a Merkel Motors v Bodenstein en 'n Ander 1980 (3) SA 917 (A) at 922E F; Dreyer and Another NNO v AXZS Industries (Pty) Ltd supra at para 17). Broadly stated, the principles applicable to agreements in general also apply to real agreements. Although the abstract theory does not require a valid underlying contract, e.g. sale, ownership will not pass despite registration of transfer - if there is a defect in the real agreement..."

'Real agreement' referred to above is derived from surrounding circumstances as no formalities are required in respect of the real agreement concerning the transfer of immovable property section 2(1) of the Alienation of Land Act 68 of 1981 only requires that a sale of land must be contained in a written deed of alienation, signed by both parties or their agents acting on their authority). Mostly, in the deeds registry such agreement is derived from the fact that the transferor signed a power of attorney to transfer. However, this circumstantial evidence not be conclusive of the real agreement as, for example, the transferor could have been under the impression that he/she was transferring only a portion of the property, or the power of attorney would state that only a portion of the property is being transferred while the deed of transfer (that is eventually registered in the deeds office) transfers the whole property. In each of these situations, both or one of the parties had no intention to transfer and there was, therefore, no real agreement as required in the abstract theory, even though registration has been possible.

Prescribed form E for a deed of transfer, in terms of regulations to the Act states that an appropriate recital of the nature of the transaction or circumstances necessitating transfer must be disclosed. It is not the deeds office practice to require documents proving this 'nature of transaction or circumstances necessitating transfer' (with the possible exception being estate transfers). This practice is perhaps sanctioned by the provisions of section 15A of the Act and regulation 44A of the same Act. The point here is that if the causa as reflected in the deed of transfer is prima facie valid the Registrar of Deeds will not reject the deed and it is submitted that this practice is a classic example of the application of the abstract system of transfer of ownership.

It is submitted that section 100 will not validate an act of registration where the causa is prima facie the deed invalid and from perusal (or examination) of the transaction it is apparent that there was no serious intention to transfer and receive between the parties to the transaction. Firstly, the Registrar of Deeds has a duty to examine all deeds and documents to be in compliance with applicable law and with reasonable care. Failure to do this is sanctioned with possible damages in terms of section 99 of the Act. Secondly, the wording of the section suggests that the legislature did not intend to absolve the Registrar from gross negligence in examination of deeds as the context in which the necessary element for the application of the section (i.e. formal defect) is used suggests that the defect must at the very least be in supporting documents (a perfect example of a formal defect will be where a sub divisional transfer was registered while the sub divisional diagram was provisionally approved). Furthermore, section 100 was probably enacted for the benefit of the Registrar of Deeds in that it refers to an act of registration. This becomes even more prominent when one considers some of the legal principles involved when deciding the effect of a purported invalid underlying causa. For example, in the Legator case (referred to above) the court, when dealing with a mistaken assumption about the validity of the underlying causa, approved the following statement made in African Realty Trust Ltd v Holmes 1922 AD 389 at 403:

"But, as a Court, we are after all not concerned with the motives which actuated the parties in entering into the contract, except insofar as they were expressly made part and parcel of the contract or are part of the contract by clear implication."

Again the court emphasised that the so-called rule in Wilken v Kohler (originating in an obiter dictum by Innes JA in Wilken v Kohler 1913 AD 135) is part and parcel of the South African law. The rule provides that if both parties to an invalid agreement have performed in full, neither party can recover his or her performance purely on the basis that the agreement was invalid.

I refer Mr. Msoni to paragraph 22 on page 45 of Legator McKenna v Shea & Others 2010 (1) SA 35 (SCA) were Brand JA said: "I also share the court a quo's view that the parties were mistaken in that belief. But I do not agree that a mistake of that kind could in itself render the real agreement void. If that were the position, we would effectively revert to the causal theory of transfer which we have jettisoned in favour of the abstract theory. I say that because I believe that very few parties (if any) to real agreements would deliberately give and receive transfer pursuant to an underlying transaction which, to their knowledge, is void. If a mistaken belief of this kind - whether unilateral or common - were therefore to render the real agreement invalid, there would not be much left of the abstract theory of transfer."

In my view the Registrar's duty and authority is (limited) to consider the validity of the "saaklike ooreenkoms" and it's compliance to applicable legislation and not that of the "verbintenisskeppende ooreenkoms" as that would be to "…effectively revert to the causal theory of transfer". I am also of the view that the "causa" in a Deed of Transfer is of very little importance and that a Deed of Transfer in fact should be a bilateral agreement between the transferor and transferee as it is a recording of the "saaklike ooreenkoms".